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Abstract

This paper reviews and discusses the debate over the effectiveness of environmental regulation in promoting industrial Technological Environmental Innovation (TEI). Using the innovation-friendly regulatory principles adapted from Porter and van der Linde (1995a, 1995b), this paper demonstrates how properly designed and implemented environmental regulation (TEI promoting regulation) has played a critical role in promoting TEI in the transport industry in California and Hong Kong. In both cases, it has shown that stringent environmental regulations that send clear and strong signals for future environmental performance requirements are critical in promoting TEIs in the public transport industries. Unlike traditional command-and-control regulations, TEI promoting regulations are strongly supported by incentive and capability-enhancing measures.

Technological Environmental Innovation And Regulations

It has been argued that traditional environmental regulation as characterized by environmental standards or permits offers little incentive for TEI because of its inflexible, technology-forcing, bureaucratic and adversarial characteristics (Fiorino, 2006). There are repeated claims that environmental regulations, typically those employed in the US, are based on existing technology and do not provide additional incentives to innovate once the regulatory requirements have been met (Porter & van der Linde, 1995a, 1995b; Jaffe & Stavins, 1995; Norberg-Bohm, 1999; Fiorino, 2006). Environmental regulations are often not effective in promoting TEI diffusion because regulatory standards are usually more lax than standard practice and therefore provide little incentive for diffusion (Jaffe & Stavins, 1995; Fiorino, 2006). Environmental regulations that are based on performance standards are usually technology-setting, which could hamper radical innovation because firms do not like taking risks (Norberg-Bohm, 1999). In some cases, the incentive to innovate and diffuse environmental technologies is further constrained by bureaucracy long embedded in the regulatory system (Fiorino, 2006). Finally, the relationship between regulators and regulated industries are sometimes highly adversarial (Fiorino, 2006). High uncertainty and the lack of trust have left industries with little incentive to move forward.